Objects in mirror may be closer than they appear
The eyes of the automotive world were on Tesla last week. The world’s leading electric vehicle maker reported its Q3 amidst a backdrop of strikes and layoffs at the three automotive giants of General Motors, Ford, and Stellantis, as well as rising competition from Chinese competitors like BYD.
Tesla reported a 9% jump in revenue, a fraction of the staggering 56% year-over-year growth the company achieved during the same period last year, as price cuts and production difficulties squeezed the company’s margins, sending its shares down ~15% over the last week.
The long road
To understand Tesla today, it helps to revisit its beginnings. Since its founding 20 years ago, by Martin Eberhard and Marc Tarpenning, Tesla has been shocking an industry resistant to change into action. The duo, disheartened by General Motors' recall of its EV1 electric cars in 2003, wanted to create their own electric sports car.
There weren’t just a few things they had to figure out how to do differently, there were a few hundred. More than a century since Carl Benz built the Benz Patent-Motorwagen — cars have changed dramatically, but the core mechanics remain similar: fuel goes in, combustion in the engine powers the crankshaft and drives the gears, and eventually, the wheels. Going electric meant starting from scratch — and that meant enormous expense.
The company set out to secure funding, eventually finding it in part from Elon Musk, a PayPal co-founder who was awash with cash after selling to eBay. Musk saw the promise in accelerating a transition away from fossil fuel dependence, investing ~$6m, joining as chairman of the board of directors and, eventually, becoming the company’s CEO in 2008.
Although the vision was to produce mass-market EVs that could rival internal combustion engines, Musk and co. decided to begin at the higher-end of the market, launching the Roadster, a 2-door sports car, in 2008. The desire to keep prices towards the premium end of town has been one that, until very recently, the company had maintained.
In its early days, Tesla could command such high prices because it had the EV market largely to itself. Today, motorists can choose from around 500 EV models, with over 200 estimated to have launched just this year. All told, Tesla’s average selling price has fallen from more than $85k in early 2018, to just over $40k in its latest quarter, after the company’s latest round of heavy discounting.
